The Iran conflict remained at the forefront of market attention in April. Fears around the trajectory of the conflict persisted into the start of the month, but risk rallied as April progressed – first on news of a two-week ceasefire, and subsequently after Trump posted that an agreement with Iran had largely been negotiated, including a commitment from Iran to never close the Strait of Hormuz again. However, with the Strait remaining closed and prospects of a deal fading into month-end, optimism gave way to renewed concerns.
Brent crude reached an intra-month low of $86.01/bbl on the initial optimism, before climbing back to close the month at $114.01/bbl. Notably, 6-month and 1-year forward oil contracts both rose in the month, as investors priced in a more prolonged closure of the Strait. Elevated oil prices have filtered through to inflation in March, with US and Euro Area inflation rising 0.9% and 1.3% month-on-month respectively.
Indeed, although most G7 central banks held cash rates steady this month, the accompanying rhetoric shifted to a more hawkish tilt. Sovereign 10-year bond yields rose accordingly: JGBs by 17bps, UK Gilts by 10bps and US Treasuries by a more modest 5bps. Part of the underperformance in UK Gilts was driven by political instability around Starmer’s ability to stay on as Prime Minister.
Despite the move higher in oil and yields, equities soared to all-time highs, with the S&P 500 returning 10.5% over the month – its strongest monthly performance since November 2020. Mirroring March’s pattern of four consecutive weekly declines, the index posted four consecutive weekly gains in April. European equities also performed strongly, with the Eurostoxx 50 returning 6.4%. In line with the strength in equities, US and European cash credit also rallied over the month, with investment-grade spreads tightening 11bps and 16bps respectively.
The firm macro backdrop drove elevated US primary issuance, with $201bn of investment-grade supply printed over the month, split roughly evenly between Financials and Corporates according to Bank of America. The standout deal was a $25bn issuance from Meta, which attracted $85bn of demand as hyperscalers continued to tap debt capital markets. We also saw several deals from Financials, including benchmark HoldCo senior transactions from four of the US Big 6. These deals had average one-day performance of 2.3bps.
In contrast to the US, European investment-grade issuance was more modest with €62bn of issuance, of which €25bn came from Financials, according to Barclays – though this marked a pickup from just €8bn of Financials supply in March. Average subscription rates across Financials deals reached around 3.9x, reflecting a combination of muted supply over the past two months and elevated investor cash balances. The most notable deal from the month was a 6-year Belfius senior bond, which drew 5x demand and rallied 8bps on the break.
